Running head: COMPENSATION PRACTICE Compensation Practice Schwanna Weston Strayer University Professor Dr. Horner-Smith July 24th 2015 1 COMPENSATION PRACTICE 2 Compensation Practice Compensation strategy refers to a plan developed by companies/organizations to reward workers based on the assigned duties and responsibilities. Depending on an organization, compensation may be direct or indirect. Under the direct compensation strategy, companies offer monetary rewards to the employees while the indirect compensation is a reward system where an organization opts to give employees the benefits that come as a result of their employment. Insurance and health are good examples of these benefits. It is worth noting that the level of compensation varies from one organization to another, and is based on its culture, activities, and philosophy (Davis & Edge, 2004). This assignment provides a comprehensive discussion of Apple's compensation practices, best practices, and identifies how the company applies compensation practice to ascertain the negative and the positive effect to the company as well as to the stakeholders. The analysis includes an examination of how labor unions, market factors, and laws affect compensation practices and evaluation Apple's traditional bases for pay. Description of Apple Inc As mentioned by O'Grady (2009), Apple is a leading technology company headquartered in Cupertino, California. Its activities include the design, manufacture, and marketing of technology devices and equipments such as personal computers and musical players. The company distributes and sells its products to both the large and small enterprises, directly to customers, through its online stores, retailers, wholesalers, and directly to various government agencies. In addition, Apple offers a wide range of applications and digital content through its Mac App Store. COMPENSATION PRACTICE 3 Compensation Strategy Apple's compensation strategy is based around a board of directors who form the compensation committee. The committee should have at least three board members who are expected to work independently and be willing to comply with all the rules and regulations of the Securities Exchange Commission and the NASDAQ Stock Market. The committee members are not allowed to interact with the team that belong a compensation committee of any other firm. The overall duty of Apple's compensation committee is to create and modify various incentive plans and compensation programs, and to review and approve different awards that fall under the incentive and compensation plans (O'Grady, 2009). It is worth mentioning that Apple does not in any way declare or share its compensation strategies with the members of the public. Instead, the company communicates directly to its employees about the manner in which it will compensate them. Davis & Edge (2004) adds Apple has put measures in place to ensure that the amount paid to its workers does not fall below the minimum wage. This could be the reason why the Fair Labor Association, an organization that advocates for improved working conditions for all employees, recognized the company. Best Practices Largely, Apple's practices are in accordance with the existing laws and regulations that dictate the manner in which companies should conduct their operations. The company understands the significance of being honest in all its dealings, respecting the staff members, suppliers, customers, and other people/organization that work with the company directly or indirectly. The company is also against any form of discrimination. The external practices of the company COMPENSATION PRACTICE 4 include not receiving or giving illegal gifts to the outsiders or government institutions. When any members of the staff suspects any form of money laundering within the organization, he or she is required to forward the report the manager or the company's legal department. Whenever there is a need for the company to engage in deals with government institutions, the legal department is always involved. This is usually done to discourage the attempt to engage in any form of corruption between government officials and the company representatives. The newly introduced policies such as the Workplace Violence Policy and the Anti-Corruption Policy have played a great role in reinforcing Apple's best practices (Lashinsky, 2012). Apple Company allows its staff to participate in voluntary programs as outlined in its matching program. According to O'Grady (2009), the company has also put system in place to ensure that it complies with various laws while encourage the members of staff to engage in activities that benefit the community members. As part of its customer policies, first priority is always given to the consumers to an extent that they are required to give their views or suggestion regarding the design of a new product that the company is in the process of introducing to the market. All the company directors are also required to act ethically. Different roles and responsibilities, such as those performed by the Chief Executive Officer, are subjected to constant evaluation process, to determine their relevance. The top management also ensures that all the company stakeholders have access to important information that they need to make certain decisions. The directors are given the freedom to interact with any member of staff who wishes to share extra insights to a topic under discussion. The compensation committee with the help of the board evaluates the performance of the CEO. Compensation-related Challenges COMPENSATION PRACTICE 5 As stated by Lashinsky (2012), there are numerous compensation-related challenges that face Apple Company. Despite the fact that company employees put a lot of effort in attempt to satisfy consumer requirements, most of them assert that the company forces them to work under unfavorable conditions and that the amount of effort the level of compensation they receive does not reflect the amount of work done. This is why the company experiences massive employee turnover. Most of the employees complain that the CEO receives maximum compensation at their expense. Some employees opt to continue working for the company because of the fear that it will not be easy for them to secure new jobs once they leave the company. O'Grady (2009) adds that the company spends a lot of money hiring and training new workers. The company then opts to provide low pay to the current workers in an attempt to offset these costs. Tainted reputation is also a major compensation-related challenge facing Apple. Following numerous complaints by employees regarding the company's compensation strategies, there have been numerous investigations conducted by the Fair Labor Association to establish the truth of the matter. After some time, the association verified these claims leading to a lawsuit against Apple. Positive or Negative Impact to the Company and Its Stakeholders The compensation strategies developed by Apple have had negative and positive effects on the company and its stakeholders. In my view, the decision by the company's management to pay hefty amounts to the top executives and soft engineers is one of the factors that have seen the company enjoy a higher rate of retention. The company does this because it believes that such people act as the drivers of innovation. This move has impacted the company positively in terms of improved products. The increased innovation level facilitated by the top management has also enhanced Apple's ability in designing and manufacturing products that conform to the specific COMPENSATION PRACTICE 6 customer needs. The company's strategy that involves hiring young, energetic, and talented people to join its workforce has helped the company to realize an outstanding performance. This consequently benefits the stakeholders by allowing them to receive more dividends. Realizing a desirable level of performance was a major factor that saw the company become listed and started the stock exchange trade. Looking at the negative impacts, Stevesson (2012) asserts that the compensation strategies have not been effective overall. As an example, the company does not consider the additional amount work of work completed by some of its employees whenever there is an increase in demand. When the company experienced a high demand of iPhone, employees were forced to work overtime but were not paid for the extra work done. The families of the affected employees went and filed a case against the company. In a court decision, the judge ruled that Apple's compensation strategies were unfair. These had other complaints tainted the company's image leading to a drop in the level of revenue. In my opinion, Apple can enhance its ability to meet the desired performance objectives by adjusting its present compensation strategies to motivate employees and at the same time encourage them to improve in terms of productivity. Effects of Labor Laws and Market factors As stated by Stevesson (2012), Apple was accused of violating labor laws in some of the regions where it operates. A good example is in China where the company forced employees to work overtime involuntarily. When these claims reached the members of the public, the company responded by adjusting the employees' wage level. There were also claims that the company's workers union was not legit because it did not advocate for the rights of workers. To a small extent, market factors have also affected the company operations. it is important to comprehend COMPENSATION PRACTICE 7 that Apple also gives consideration to other issues such as consumer tastes and preferences, industry rates, and the minimum wage. The Effectiveness of Traditional Pay Bases As mentioned by Dwivedi (2010), Apple structured its pay base in such a way that only the top company executives were eligible for bonuses. There was a fixed system where those on long tenure received the benefits while the other employees followed a wide pay plan. Later on, the company developed a total rewards approach where both the base pay and the variable pay are considered. Under this system, the company executives are given annual incentives while the level of skills and knowledge determines the job grade and pay. This is an indication that the company has recorded a slight improvement in its effort to move from the traditional pay system into a modern system of payment. Conclusively, it is apparent that Apple has made significant effort in helping people understand the impact of technology. Since its establishment, many people have had a chance to interact with technology and ascertain its benefits. In my opinion, Apple's growth is attributed to its ability in adopting appropriate compensation strategies and best practices that have eventually given the company a good image. However, there is need for the management to rectify or address some of the issues that are hindering the company from realizing its full growth potential. COMPENSATION PRACTICE 8 References Davis, M. L., & Edge, J. T. (2004). Executive compensation. San Diego, CA: Windsor Professional Information. Dwivedi, R. S. (2010). Textbook of human resource management. New Delhi: Vikas Pub. House Pvt. Ltd. Lashinsky, A. (2012). Inside Apple: How America's most admired-and secretive-company really works. New York: Business Plus. O'Grady, J. D. (2009). Apple Inc. Westport, Conn: Greenwood Press. Stevesson, P. (2012). Foxconn Apple Factories Violated Chinese Labor Laws, According To Fair Labor Association. Retrieved from http://www.huffingtonpost.com/2012/03/29/foxconnapple-factories-labor-violations_n_1389392.html?ir=India&adsSiteOverride=in